There is a gulf between public perceptions that the IMF is helping the poorest countries, and the reality, that it’s main role has been sorting out the financial disaster in Eastern Europe. Since the onset of the crisis, of the IMF’s 18 new lending arrangements 82% of resources have gone to Eastern Europe, only 1.6% to sub-Saharan Africa. The IMF itself says it can only cover 2% of the external financing needs of low-income countries.
A major institutional change has taken place in the way the Fund finances its work. In the old days, staff salaries were paid out of the interest on its loans, so if countries stopped borrowing, the IMF got into financial difficulties (precisely what was happening just before the crisis – the institution was predicting an estimated shortfall of $400 million a year by 2010 and had to lay off 300-400 of its staff (the total of which was 2600). But that has all changed and the Fund:
a) can now issue its own bonds (China intends to invest up to US$50 billion in them, Brazil and Russia have also committed to invest $10 billion each).
b) has set up an endowment created with the profits from the limited sale of 403.3 metric tons of the Fund’s gold holdings.
c) has reintroduced cost recovery on its concessional lending to low-income countries
d) has received massive new credit lines, largely from the old G7 countries – this is the bulk of the much trumpeted increase in the so-called ‘New Arrangements to Borrow‘ from $50 billion to $500 billion agreed at the London Summit.. These arrangements are in essence agreements from member countries who to stand ready to lend to the IMF. Separately, Japan has already contributed a $100 billion credit line (through a bilateral borrowing agreement) to bolster IMF resources. In a similar vein, Norway $4.5 billion, Canada $10 billion, and the EU has pledged $100 billion.
This increases predictability, but perversely means the IMF is now less accountable/responsive to developing countries – its staff’s jobs no longer rely on convincing them to take its loans. In fact there is even some suspicion that one of the motives for G7 countries to pump money into the fund is precisely to prevent voting reform that would reduce their clout. Ngaire called this ‘the last gasp of the G7 trying to manage the world by clinging to the IMF.’